The correct answer is: A. cost allocation
Cost allocation is the process of assigning costs to cost centers or cost units. It is a necessary step in the process of cost accounting, which is the process of tracking and reporting costs.
Cost allocation can be done in a number of ways, but the most common method is to use a cost driver. A cost driver is a factor that causes costs to increase or decrease. For example, the number of units produced is a cost driver for the cost of direct labor.
Once a cost driver has been identified, the costs can be allocated to cost centers or cost units based on the amount of the cost driver that each cost center or cost unit uses. For example, if the cost driver is the number of units produced, then the cost of direct labor would be allocated to each cost center based on the number of units produced in that cost center.
Cost allocation is an important part of cost accounting because it allows businesses to track and report costs accurately. This information can then be used to make decisions about pricing, production, and other areas of the business.
Here is a brief explanation of each option:
- Cost apportionment is the process of assigning costs to cost centers or cost units based on a predetermined formula. This is different from cost allocation, which is based on the amount of the cost driver that each cost center or cost unit uses.
- Cost absorption is the process of assigning all costs to products or services. This is done in order to determine the full cost of a product or service.
- Cost disbursement is the process of paying out costs. This is done when a business incurs a cost, such as the cost of materials or labor.